New legislation came into force on 1 July, 2017 in the Cayman Islands (‘Cayman’) requiring all companies and limited liability companies (‘LLCs’) registered in Cayman (and their subsidiaries) to establish and maintain a beneficial ownership register (‘BOR’), unless they are ‘exempted’. The legislation does not apply to Cayman exempted limited partnerships (‘ELPs’). Although Cayman companies and LLC’s are already required to keep and maintain certain beneficial ownership information in line with international standards and commitments to combat tax evasion and money laundering, this new regime agreed between the British Government and other Crown dependencies and overseas territories is aimed at enhancing how this information can be exchanged between government authorities.
Who has to keep a BOR?
Except for those companies which are exempt – see below – all companies and LLCs incorporated in Cayman which are registered under either the Companies Law (2016 Revision) (‘CosLaw’) or the Limited Liability Companies Law, 2016 (‘LLC law’) including foreign companies registered under that law must maintain a BOR. This includes:
a) Cayman exempted companies;
c) Ordinary non-resident companies; and
d) Special Economic Zone Companies.
Who is exempt from keeping a BOR?
Companies or LLCs (or their subsidiaries) which are exempted from keeping a BOR are those which are:
a) listed on the Cayman Stock Exchange or an approved exchange listed in Schedule 4 of the CosLaw;
b) registered or holding a licence under a ‘regulatory law’ as defined in s. 2 of the Monetary Authority Law (2016 Revision);
c) managed, arranged, administered, operated or promoted by an approved person as a special purpose vehicle, private equity fund, collective investment scheme or investment fund;
d) a general partner of a vehicle, fund or scheme referred to in paragraph (c) that is managed, arranged, administered, operated or promoted by an approved person; or
e) exempted by the Regulations (which currently do not provide for any other exemptions).
This completely exempts Cayman Islands insurance and captive insurance companies from the obligation to establish and maintain a BOR. As these companies should already be licensed and regulated by the Cayman Islands Monetary Authority (CIMA) in terms of the Insurance Law (one of the ‘regulatory laws’ defined in s. 2 of the Monetary Authority Law (2016 Revision)), they fall squarely within the exemption provided in b) above. The basis for the exemption arises because CIMA should already have all the necessary beneficial ownership information which would have been provided by the licensee as part of the licensing process. This information needs to be kept updated in terms of the relevant provisions of the Insurance Law and regulations, so there is no need for a duplication of efforts.
Although licensed captive insurance companies should be exempt from establishing and maintaining a BOR, an amendment bill (CosLaw Amendment Bill) has recently been published which, if passed in its current form, will require an exempt company to provide its corporate service provider (insurance manager) with a declaration of exemption indicating the grounds for the exemption along with instructions to file the same with the competent authority. This would introduce a new requirement which captives and insurance managers need to be aware of. It is still to be determined exactly what form the declaration is to take, when it must be filed, and what the procedure will be. The procedure for filing the declaration will likely be similar or the same as the procedure corporate services providers must currently follow when submitting BOR data to the relevant authority. Insurance managers should also be aware that failure to file the necessary declaration of exemption will likely give rise to a fine for failure to provide “beneficial ownership information” in the amount of CI$500 and, if the competent authority is satisfied that the default was knowingly or wilfully authorized or permitted, there will be an additional penalty of CI$1,000 and a further penalty of CI$100 for every day during which the default continues. It should be noted that the CosLaw Amendment Bill is still in draft form and changes may yet be made to these provisions prior to implementation.
We suggest that the board of directors of captive insurance companies and insurance managers adopt at least the following procedures in relation to the new BOR regime:
- The captive board should formally assess and confirm whether the entity will indeed be exempt from maintaining a BOR and document that the assessment has been made.
- The captive board should also implement a process to review the classification on a regular basis, at least once per annum, or as soon as possible following any subsequent legislative or regulatory updates.
- Assuming the CosLaw Amendment Bill is passed in its current form, exempt captive insurance companies should provide the captive’s insurance manager with a declaration of exemption indicating the grounds for the exemption and instructions to file the same with the competent authority. The insurance manager will then be obliged to attend to the filing accordingly.
For those captive owners and operators who do have other Cayman Islands companies or LLC’s which may be required to establish and maintain a BOR, the following further information should be of assistance.
Who is classed as a Beneficial Owner?
The BOR must include ‘registrable persons’, which may be individuals or entities. Working out who is included is determined by applying the Regulations (Part 4 of the The Beneficial Ownership (Companies) Regulations, 2017 and Part 4 of the The Beneficial Ownership (Limited Liability Companies) Regulations, 2017). As a general guide, under both the CosLaw and LLC Law, for an individual to be classed as a beneficial owner they must hold, directly or indirectly, more than:
(a) 25% of the shares in company; or
(b) 25% of the voting rights in company; or
(c) the right, directly or indirectly, to appoint or remove a majority of the board of directors.
An individual, trust, partnership or other non-legal person may also be classed as a beneficial owner if it has the absolute and unconditional legal right to exercise (or actually exercises) significant influence or control over the company or LLC through an ownership structure or interests described in a-c above, other than solely in the capacity of a director, professional advisor or professional manager.
What information has to be kept?
The CosLaw and LLC Law each require information on ‘registrable persons’ to be recorded in the company or LLC BOR. Registrable persons in respect of a company or LLC are (i) beneficial owners of the company or LLC, or (ii) “relevant legal entities”. Relevant legal entities are legal entities incorporated, formed or registered (including by way of continuation or as a foreign company) in Cayman that would be beneficial owners if they were individuals. Partnerships, trusts and other bodies that are not legal persons are not relevant legal entities. Companies and LLCs have to identify all beneficial owners and relevant legal entities and give them written notice asking them to confirm their status and correct any inaccurate information before it goes on the BOR. The beneficial owners and relevant legal entities must reply to this written notice within one month. This is a tight timeframe and there are significant penalties for default. Beneficial owners and relevant legal entities are obliged to supply that information to the company or LLC and confirm the date on which they became a registrable person. Essentially the information required is the same under each law:
full legal name
corporate or firm name
residential address and, if different, an address for service of notices
registered or principal office
date of birth
the legal form of the entity and the law by which it is governed
information identifying the individual from their passport, driver’s licence or other government-issued document including –
(i) identifying number
(ii) country of issue and
(iii) date of issue and of expiry and
if applicable, the register of limited liability companies in which it is entered and its registration number in that register and
the date on which the individual became or ceased to be a registrable person in relation to the LLC or company in question.
the date on which it became or ceased to be a registrable person in relation to the LLC or company in question.
Who will get to see this information?
The information will not be held on a public register. Only the ‘competent authority’ designated by the Minister of Financial Services will be allowed access to Beneficial Ownership Information (BOI) held on a company’s BOR. That competent authority will set up a secure ‘search platform’ by which it will be able to access the BOI held on all BORs. It will only do so in response to:
(a) a request from a designated official in a jurisdiction that has entered into an agreement with the Cayman government to share BOI with Cayman, or
(b) a request from a specified law enforcement body if the request is in compliance with the legislation governing the affairs of such body.
Only the competent authority will be able to access the information and the platform must prevent information being communicated to any person that a search is being or has been made, other than when, in what are likely to be very limited circumstances, it expressly decides to disclose that information.
Where is the information held?
The BOI will be held at the company or LLC’s registered office (‘RO’). The BOR itself will be established and maintained either by a corporate services provider (“CSP”) or the Cayman Registrar of Companies (‘Registrar’). (The Registrar will charge for this service.)
What do I need to do and when?
If you have a Cayman registered company or LLC then you will need to establish and maintain a BOR unless the company or LLC is exempt. As soon as possible, you should appoint a CSP to establish and maintain the company’s BOR (including an ‘information technology solution’ by which the competent authority can access that information). The BOR regime came into force on 1 July 2017 and in-scope entities should take immediate steps to establish and maintain their BOR if they have not already done so. However, if you have not yet done so, there is a one-year grace period during which non-compliant entities will not be prosecuted.